Experts flag pay hike effect on fiscal deficit

 

While the move is expected to spur consumption demand in the economy, rating agencies such as S&P and Fitch and analysts from several leading brokerages believe that it would pose a major challenge for the government in achieving its fiscal consolidation road map.

 

However, the government expressed confidence of sticking to its fiscal deficit target. The government has earlier set a target of bringing down fiscal deficit to 3.5 per cent of GDP in 2016-17, from 3.9 per cent in 2015-16. The seventh pay commission has recommended a 23.55 per cent increase in public sector salaries and pensions, which would put an additional burden of Rs 1.02 lakh crore on the centre. 

 

While Standard & Poor’s India sovereign analyst Kyran Curry told PTI that the wage hike will put pressure on the government’s fiscal position and would act as a constraint to stick to the road map for fiscal consolidation, another rating major Fitch said that the government is likely to cut expenditure in other areas.

 

“There may be some room to rein in the subsidy bill, for example. But the government may find cuts in capital expenditures undesirable,” Fitch Ratings said in its report. 

Responding to these concerns, economic affairs secretary Shaktikanta Das said in New Delhi that the government is confident about maintaining the fiscal road map. “This was something which was expected,” he added.